Question

To obtain the dollar sales volume necessary to attain a given target profit, which of the following formulas should be used? Multiple Choice (Fixed expenses + Target net profit)/Total contribution margin (Fixed expenses + Target net profit)/Contribution margin ratio Fixed expenses/Contribution margin per unit Target net profit/Contribution margin ratio

Answer 1

Answer:

(Fixed expenses + Target net profit)/Contribution margin ratio

Explanation:

The formula to compute the dollar sales volume for attaining the target profit is shown below:

= (Fixed expenses + target profit) ÷ (Contribution margin ratio)

where,

Fixed expenses = Fixed cost

Target profit = The budgeted profit

And, the contribution margin ratio is

Contribution margin ratio = (Contribution margin per unit) ÷ (selling price per unit) × 100

where,

Contribution margin per unit = Selling price per unit - Variable expense per unit